CBOT Grains Daily Options Report
Recap of day's options activity and data.
PJ Quaid
- Grains & Oilseeds
Perspective: Mid-Day Commentary for March 18
By: Arlan Suderman, Chief Commodities Economist
March 18 - Stocks slipped lower today on rising inflation risks following this morning's hot producer price index data, and on the heels of rising energy costs. The VIX is trading near 23 at midday, while the dollar index trades near 99.8. Yields on 10-year Treasuries are trading near 4.23%, while yields on 2-year Treasuries are trading near 3.71%. Crude oil prices are trading near $98 at this hour. The grain and oilseed markets are higher at midday, led by a surge in wheat, with Kansas City up 23 cents currently as intense dry heat moves into the Plains following this week's bitter cold. November soybeans are also still trying to buy acres on expectations of a favorable RVO biofuel program next week, with corn following along.
U.S. commercial crude oil stocks (excluding the Strategic Petroleum Reserve) rose by 6.2 million to 449.3 million barrels in the week ending March 13, leaving them just 1% below the five-year average for mid-March. Take note that U.S. crude oil stocks are near average for this time of year, despite the Iran war. More on that later. Gasoline stocks fell by 5.4 million barrels last week, putting them 3% below seasonal levels. Distillate stocks dropped by 2.5 million barrels, putting them also 3% below levels typically seen in mid-March.
Brent crude oil prices fell just short of $110 per barrel this morning, while West Texas Intermediate crude oil traded just above $99 per barrel. The increase came on reports that Israeli forces hit Iran's massive Pars gas field, which is our first significant strike on Iran's energy infrastructure during the current conflict. That prompted Iran to warn of strikes against neighboring country energy installations "in the coming hours." Israeli media reports that its forces carried out the attack with consent from the United States. This is a significant escalation of the war. No longer can the flow of oil go back to "normal" after the Strait of Hormuz reopens, as infrastructure will need to be repaired. How much infrastructure must be repaired is yet to be determined by the extent of the escalation in the days ahead.
Note the big spread in Brent crude over WTI crude. U.S. crude oil stocks are near normal, while Asian stocks are quite tight. Brent is the closest market for the Asian market to benchmark. This will have major implications in the months ahead as Asian customers must choose how to best utilize their limited resources with rapidly rising cash energy costs. Furthermore, the above infrastructure damage will also reduce fertilizer production capability in the region, which is a major world supplier of nitrogen fertilizer. On a side note, I'm seeing reports that Egypt is implementing policy to shut down shops, malls and restaurants at 9 p.m. each day to conserve electricity due to the energy shortage.
Ethanol stocks rose to 26.4 million barrels in the week ending March 13, up from 25.6 million barrels the previous week, but slightly below the 26.6 million barrels in the same week last year. Ethanol production slipped to 1,093K barrels per day last week, down from 1,126K bpd the previous week, and down from 1,105K bpd in the same week last year. The production of ethanol utilized an estimated 103.5 million bushels of corn last week, down from 106.7 million bushels the previous week, and down from 106.0 million bushels in the same week last year. Estimated marketing year to date corn use for fuel ethanol production totals 2.932 billion bushels, down 24 million bushels from the previous year's pace as the industry continues to improve efficiencies in production. The year to date total now falls short of the seasonal pace needed to hit USDA's target by 44 million bushels.
- Grains & Oilseeds
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